Some Thrift Savings Plan (TSP) investors are skittish about the stock market. The election in the United Kingdom to leave the European Union, a presidential election coming up in November, and a very long running bull market have combined to make investors jumpy and worried about a significant decline in stock prices.

Federal employees investing in the TSP have been consistent this year. In June, more than $2.1 billion was pulled from the TSP stock funds and the lifecycle funds. At the same time, about $2.1 billion was moved into the G fund and the F fund.

In May 2016, investors in the Thrift Savings Plan (TSP) moved $973 million into the G fund. They moved $613 million out of the C fund, $174 million out of the S fund and $186 million out of the I fund.

In April 2016, TSP investors were heading down this same path. $491 million was transferred from the C fund in April and $412 million was moved from the S fund. Another $145 million was moved from the I fund. In the other direction, $617 million was moved into the G fund and $234 million into the F fund. $198 million went into the Lifecycle funds. (See Following the Herd: TSP Investors Headed for Safety in April)

In January 2016, when the stock market was diving, TSP investors moved almost $1.5 billion out of stock funds and into the G and F funds and out of the stock funds. (See Will TSP Investors Panic and Sell?)

So, as the stock market has hit new highs in June and July, a few billion of investor dollars lost out on those gains of more than 7% in the C fund and, instead, settled for the safety and meager returns of the G fund which has returned about 1% in 2016.

Will the stock market continue to go up or will it drop dramatically in the immediate future? I have no idea. But, for those who are going to react to stock prices after the fact, developing a plan for regular investments within the TSP taking into account a tendency to buy high and sell low may be a good idea.

TSP Investor Actions During Market Declines

Worrying about the safety of financial investments is an understandable human tendency. Many investors act the same way when there appears to be increasing reasons for concern.

For example, from June through October 2002, when stock prices were at their lowest levels of a market cycle, TSP participants pulled $3.8 billion out of the C fund and put their money into bond funds. The timing of these investors was bad for their financial health. They sold their stock funds at the lowest levels just before the C fund jumped up 29% in 2003 (the I fund went up 38% and the S fund went up 43% in 2003) and continued to go up for the next few years until falling again in 2008. The C fund has been up every year since 2008.

Reactions of some TSP investors were repeated in 2008.

The stock market tanked in 2008 and the C fund went down about 37%. The S fund was down more than 38% and the I fund was down more than 42%. Some TSP investors were fearful of losing what was left of their money and sold all or a large portion of their stock funds.

Some of these TSP investors never put money back into the C fund after they sold their shares, and some undoubtedly missed out on the market when it rebounded. In 2006, for example, 35% of CSRS employees’ investments and 36% of FERS employees’ investments were in the C fund. At the end of January 2012, only 23% of CSRS employees’ investments and 24% of FERS employees’ investments were in the C fund. The percentage of TSP assets in the G fund was up to about 47% in 2011 and declined to about 35% in 2014 before starting to head back up again in 2015 and 2016.

At the end of June 2016, 37% of investor funds are in the G fund. Another 5% is in the F fund. 27% of TSP investments are now in the C fund. Based on past experience, some of these investors will pull more money out of the C fund and other stock funds when the market goes down again—and it will go down as it always does.

Moving money in and out of stocks as some investors appear to do can seriously reduce financial returns. Those who sell their stocks in a declining market often sell at a low price. Buying back TSP stock fund shares at a later time, and at a higher price, means an investor has received a lower rate of return than he would have by keeping the stock investments for a longer time period.

TSP Facts

The TSP has a balance of more than $470 billion and almost $4.8 billion in Roth accounts as of the end of June. There are now 778,481 Roth accounts.

Currently, 89.4% of FERS employees participate in the TSP. 64.8% of CSRS employees participate in the TSP and 44.9% of active duty military personnel participate. 4% of those automatically enrolled in the TSP have opted out of the program.

There are now more than 4.9 million TSP participants and under 18 thousand beneficiary participants.

FedSmith will post the latest TSP returns for the month of July, year-to-date and past 12 months on August 1st.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47